SAM E. HADDON, District Judge.
Plaintiffs in this case allege themselves to be consumers who purchased either Three Cups of Tea, a book coauthored by Defendants Greg Mortenson ("Mortenson") and David Oliver Relin ("Relin"), or Stones Into Schools, a book authored by Mortenson (collectively, "the Books"). Penguin Group, Inc. ("Penguin") published the Books. Plaintiffs claim they were harmed by Defendants when they purchased the Books under the belief they were "nonfiction," although the books were, allegedly, filled with fabrications.
Pending before the Court are Defendants' motions to dismiss Plaintiffs' Fourth Amended Complaint
In 1993, Mortenson visited mountains near K-2 in Pakistan. Some years later, he and Relin coauthored Three Cups of Tea as an account of Mortenson's humanitarian efforts in Pakistan. Penguin published the book in 2006. A follow-up book, Stones Into Schools, written by Mortenson, was published by Penguin in 2009. Penguin marketed both books as "nonfiction." Central Asia Institute ("CAI"), a nonprofit Delaware corporation, headquartered in Montana, allegedly expended significant sums of money to finance the writing, publishing and sales of the Books. Plaintiffs claim that Mortenson transferred funds from the book sales to MC Consulting,
Plaintiffs contend they purchased one or more of the Books for approximately $15 each. They claim that the Books should not be categorized as nonfiction, as a number of misstatements relating to their contents have surfaced, and that Mortenson, Relin, MC, CAI, and Penguin entered into a fraudulent scheme to falsely portray Mortenson as a hero in order to boost book sales.
On May 5, 2011, a class action complaint alleging fraud, deceit, breach of contract, RICO violations, and unjust enrichment was brought against Mortenson and CAI.
No class certification motion under Rule 23(c)(1)(A) has been filed. In the absence of such motion and in the interests of judicial economy, the Court has determined it appropriate to address and resolve the pending motions to dismiss.
Hearing on the motions was held on April 18, 2012. The matter is ripe for decision.
Plaintiffs now assert what are denominated as twelve separate causes of action: RICO violations (Counts I and II), Breach of Contract (Count III), Breach of Implied Contract (Count IV), Fraud (Count V), Deceit (Count VI), Unjust Enrichment (Count VII), Penguin Liable as Principal (VIII), Punitive Damages (Count IX),
Fed.R.Civ.P. 8(a)(2) requires "a short and plain statement of the claim showing that the pleader is entitled to relief in order to give a defendant a fair notice of what the claim is and the grounds upon which it is based." "All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party" in assessing a motion to dismiss for failure to state a claim under Rule 12(b)(6). Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996).
A two-step analytical process for determining the sufficiency of pleadings under Rule 8 was established by the United States Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In step one, the court determines which allegations are merely "labels and conclusions," "formulaic recitations," or "naked assertion[s]." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. (citing Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955). The reviewing court need not accept the truth of such allegations. Id. Step two requires the court to determine whether the remaining allegations, which the court must accept as true, "plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. The reviewing court, in determining plausibility, is required to engage in a context-specific task drawing on the court's "judicial experience and common sense." Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. Satisfaction of this pleading requirement does not oblige the pleader to show probability of entitlement to relief, just plausibility.
Rule 9(b) requires a party alleging fraud to "state with particularity the circumstances constituting fraud or mistake, [while] [m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Iqbal acknowledged that Rule 9(b) allows "a person's mind to be alleged generally," but does "not require courts to credit a complaint's conclusory statements without reference to its factual context." Iqbal, 556 U.S. at 686, 129 S.Ct. 1937. "Rule 9 ... excuses a party from pleading discriminatory intent under an elevated pleading standard," but does not enable evasion of "the less rigid... strictures of Rule 8." Iqbal, 556 U.S. at 686-87, 129 S.Ct. 1937.
"The elements of a civil RICO claim are ...:(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as `predicate acts') (5) causing injury to plaintiff's `business or property'." Living Designs, Inc. v. E.I. Dupont de Nemours, 431 F.3d 353, 361 (9th Cir.2005) (citing Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir.1996) (citing 18 U.S.C. § 1964(c), 1962(c))). To plead causation, Plaintiffs must allege that Defendants' violation was both the direct and the proximate cause of a concrete financial injury. See Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1117 (9th Cir. 1999).
All RICO claims involving fraud must be alleged with particularity under Rule 9(b), and require plaintiffs to allege "the time, place, manner of each predicate act, the nature of the scheme involved, and the role of each defendant in the scheme." Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991). Furthermore, "Rule 9(b) does not allow a complaint to merely lump multiple defendants together." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007). Plaintiffs are "require[d] to differentiate
Plaintiffs' RICO claims
Plaintiffs begin their factual accusations by listing several alleged fabrications within the Books, which the enterprise wrote. Plaintiffs next describe numerous lies said to have taken place after the Books were written. Examples include CAI purchasing many of the Books from outlets, the enterprise using "fraudulent speaking engagements," paying Mortenson's expenses, and advertising and promoting the Books.
The Complaint rests on two primary arguments: (1) the enterprise advertised and promoted the books;
The Complaint states, in support of causation, that the individual Plaintiffs purchased the Books because it was "represented to [them] as true."
Plaintiffs assert they suffered concrete financial loss when they paid full price for a nonfiction book when it was fiction. The financial loss is alleged to be "the out-of-pocket loss, ... minus the value of the false and fraudulent "nonfiction" books, which is [characterized as] zero."
The RICO claims are fraught with shortcomings, including failure to satisfy causal elements, failure to specify the roles of the Defendants, not adequately pleading enterprise theories, and failure to specify an actionable, identifiable racketeering activity. Failure to adequately address the causal elements is the ultimate and fatal flaw. The Complaint does not state, nor is it possible to ascertain, whether Plaintiffs would have purchased the Books if: (1) the Books were labeled or marketed as fiction; or (2) the readers knew portions of the Books, as claimed, were fabricated. Plaintiffs' overly broad statements that they paid approximately $15 for the Books because they were represented as true does not suffice. Additionally, Plaintiffs fail to allege when they purchased the Books, which is crucial in analyzing this case.
The Complaint likewise does not differentiate allegations against each Defendant, nor does it inform Defendants separately of the allegations surrounding any alleged participation in the fraud. General statements that the enterprise caused Mortenson to make various false statements relating to his life experiences do not satisfy Twombly and Iqbal standards.
The Complaint's conclusory allegations referencing the legal elements of a RICO enterprise fail. The "enterprise" element is not met. See U.S. v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Moreover, no RICO claim through an "associate-in-fact enterprise" theory, is pleaded.
As noted, the primary wrongdoing claimed is that Defendants allegedly knew of the Books' falsehoods and decided to write, promote, and sell them under the
A common law fraud pleading must allege nine elements: "(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance upon its truth; (8) the right of the hearer to rely upon it; and (9) the hearer's consequent and proximate injury or damage" caused by their reliance on the representation. May v. ERA Landmark Real Estate of Bozeman, 302 Mont. 326, 15 P.3d 1179, 1182 (2000). The heightened pleading standard of Rule 9(b) must be met. See Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir.2001); Fraunhofer v. Price, 182 Mont. 7, 594 P.2d 324, 328 (1979).
Under Montana law, deceit may be proven if "[o]ne ... willfully deceives another with [the] intent to induce that person to alter the person's position to [his] injury or risk." Mont.Code Ann. § 27-1-712. Deceit can be either: (a) suggesting a falsity as a fact "by one who does not believe it to be true;" (b) asserting "as a fact [something] which is not true by one who has no reasonable ground for believing it to be true;" (c) suppressing "a fact by one who is bound to disclose it or who gives information of other facts that are likely to mislead for want of communication of that fact; or (d) a promise made without any intention of performing it." Id. Additionally, "[o]ne who practices ... deceit with intent to defraud the public or a particular class of persons is considered to have intended to defraud every individual in that class who is actually misled by the deceit." Id. Deceit is essentially grounded in fraud, therefore, Rule 9(b)'s heightened pleading standard applies. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-05 (9th Cir.2003).
The fraud and deceit claims incorporate allegations from the RICO claims. Formulaic recitations of elements of fraud and deceit are added.
Plaintiffs assert that the fraud and deceit claims meet Rule 9(b)'s specificity requirements. Not so. The fraud pleadings in point of fact are weakened by incorporation of the flawed RICO allegations. Moreover, the Complaint fails to specify what representation the Plaintiffs relied upon
A contract must contain: "(1) identifiable parties capable of contracting; (2) their consent; (3) a lawful object; and (4) a sufficient cause or consideration." Mont. Code Ann. § 28-2-102; Interstate Prod. Credit Ass'n. v. Abbott, 223 Mont. 405, 726 P.2d 824, 826 (1986). The parties' "consent... must be free, mutual, and communicated by each to the other." Mont.Code Ann. § 28-2-301; Abbott, 726 P.2d at 826; See also Keesum Partners v. Ferdig Oil Co., Inc., 249 Mont. 331, 816 P.2d 417, 421 (1991). If the contract's terms "are stated in words," an express contract is found. Mont.Code Ann. § 28-2-103. If the "existence and terms" of an agreement "are manifested by conduct," rather than words, an implied contract may exist. Id. An implied "contract arises not from consent of the parties but from the law of natural justice and equity, and is based on the doctrine of unjust enrichment." Brown v. Thornton, 150 Mont. 150, 432 P.2d 386, 390 (1967).
Assertion of a claim for breach of contract requires privity of contract between plaintiff and defendant. State ex rel. Buttrey Foods, Inc. v. Dist. Court of Third Judicial Dist., 148 Mont. 350, 420 P.2d 845, 847 (1966). The Court has not found and the parties have not referenced controlling authority or persuasive case law in the Ninth Circuit directed to privity of contract between an author or publisher of a book and a reader who purchased such book. The Second Circuit's principle that a news publisher is not in privity with the publication's purchasers, absent "fraud amounting to deceit, libel, or slander" is, however, persuasive. First Equity Corp. of Fla. v. Standard & Poor's Corp., 869 F.2d 175, 179 (2d Cir.1989); See also Jaillet v. Cashman, 115 Misc. 383, 384, 189 N.Y.S. 743 (N.Y.Sup.Ct.1921).
The Ninth Circuit has cited First Equity in holding that a book publisher owed no duty to a car dealership owner for allegedly publishing errors concerning emission systems in automobiles. Sinai v. Mitchell Books, 996 F.2d 1227 (9th Cir.1993). Incidentally, Lacoff v. Buena Vista Pub., Inc., 183 Misc.2d 600, 611, 705 N.Y.S.2d 183 (N.Y.Sup.Ct.2000) cited Sinai in supporting that publishers have no duty to investigate the accuracy of its books. Lacoff dismissed a consumer action against a publisher and arranger of a "how to" book for alleged false claims within the books. While contract claims were not discussed in detail in those cases, they nevertheless serve as a starting point for analyzing privity as it relates to contract formation and contract law.
Plaintiffs' contract claim asserts that: (1) "Mortenson, Relin, and Penguin offered... the Plaintiffs and the class" (2) "nonfiction and true stories of Mortenson's activities," (3) "Plaintiffs ... paid for, and received, the ... books," (4) but many "representations made in the books were false, misleading, deceptive, and contrary to the agreement."
The Complaint contains no allegations that the parties entered an express contract with terms expressed in "words." An express contract is not well-pleaded. Iqbal, 556 U.S. at 686-87, 129 S.Ct. 1937; Twombly, 550 U.S. at 555-56, 127 S.Ct. 1955.
Plaintiffs' alternative breach of implied contract claim states that, "[b]y writing, publishing, advertising, marketing, and promoting [the Books] as nonfiction and true stories, the characteristics of said books became an implied contractual condition of sale upon the purchase thereof by the Plaintiffs and the class."
The Court cannot accept as true, and as a matter of sufficiency of pleading, Plaintiffs' conclusory statement that "[b]y writing, publishing, advertising, marketing, and promoting [the Books] as nonfiction and true stories, the characteristics of said books became an implied contractual condition of sale." More is necessary if an implied contract is to be found.
The Complaint, arguably, may be said to adequately plead two of the four elements necessary in a breach of implied contract claim. The implied contract claim could be said to plead a lawful object (a book sale), and identifiable parties capable of contracting (Plaintiffs as purchasers, and Relin, Mortenson, and Penguin as authors and publisher). However, consent and consideration are not shown.
Plaintiffs claim to have paid $15 consideration to receive the Books. Whether Penguin, Mortenson, Relin or someone else received Plaintiffs' money is not asserted. Penguin, as publisher, arguably may have received a portion of the money, but the Complaint does not indicate whether Relin or Mortenson received any part of the consideration. Although further investigation might reveal a contract between Penguin and the authors entitling Relin and Mortenson to some share of the profits, the Complaint does not so allege.
Even if consideration were not at issue, consent has not been shown. Plaintiffs fail to establish whether Mortenson, or Relin, or Penguin offered the Books for sale, instead naming all three as having offered the Books for sale to purchasers as nonfiction pieces of literature.
The Montana Supreme Court has determined that if an implied contract is to said to exist, the four elements of a contract must still be present and some form of communication and relationship must exist between the parties. See CB & F Development Corp. v. Culbertson State Bank, 256 Mont. 1, 844 P.2d 85 (1992); Lythgoe v. First Sec. Bank of Helena, 222 Mont. 163, 720 P.2d 1184 (1986); In re Marriage of Rock, 257 Mont. 476, 850 P.2d 296 (1993); McNulty v. Bewley Corp., 182 Mont. 260, 596 P.2d 474 (1979); St. James Cmty. Hosp. v. Dept. of Social and Rehabilitation Services, 182 Mont. 80, 595 P.2d 379 (1979). Such is not the case here.
"[U]njust enrichment is an equitable means of preventing one party from benefitting from his ... wrongful acts." Hinebauch v. McRae, 362 Mont. 358, 264 P.3d 1098, 1103-04 (2011) (citing Estate of Pruyn v. Axmen Propane, Inc., 354 Mont. 208, 223 P.3d 845 (2009) (citations omitted)). Even "in the absence of a contract between parties, [unjust enrichment] may create an implied contract in law." Id. To prevail on a claim for unjust enrichment, a "plaintiff must show some element of misconduct or fault on the part of the defendant, or that the defendant somehow took advantage of the plaintiff." Randolph V. Peterson, Inc. v. J.R. Simplot Co., 239 Mont. 1, 778 P.2d 879, 883 (1989) (citing Brown v. Thornton, 150 Mont. 150, 432 P.2d 386, 390 (1967)). As previously discussed, Plaintiffs have failed to sufficiently allege reliance, cognizable injury, and misconduct against the Defendants. The Unjust Enrichment claims (Counts VII and X) are dismissed.
An injunction "is appropriate [only] when a party demonstrates `(1) that it has suffered an irreparable injury; (2) that remedies available at law ... are inadequate ...; (3) that, considering the balance of hardships between the [parties], a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.'" Northern Cheyenne Tribe v. Norton, 503 F.3d 836, 843 (9th Cir.2007) (citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006)). Plaintiffs fail to allege an "irreparable injury" or that remedies at law are inadequate, as evidenced by Plaintiffs' specific damage request (the price of the books).
An accounting must show that there is some relationship between the parties requiring an accounting, and that the plaintiff is entitled to a balance that can only be ascertained by such relief. Teselle v. McLoughlin, 173 Cal.App.4th 156, 179-80, 92 Cal.Rptr.3d 696 (2009). Plaintiffs fail to show, or even allege, such a relationship exists. Furthermore, they specifically allege the right to recover a certain sum or a sum that can be made certain by calculation. For these reasons, the Accounting claim (Count XI) fails and is dismissed.
Plaintiffs' failure to adequately allege valid causes of action as claimed in Counts I, II, III, IV, V, VI, VII, X, and XI is fatal to the remaining claims in Count VIII (Penguin Liable as Principle), Count XII
In short, the Complaint fails and is deficient on several fronts. The RICO, fraud, and deceit claims are not pled with the requisite level of particularity. Plaintiffs fail to satisfy causal elements of RICO, do not identify each Defendant's role in the frauds, present highly questionable enterprise theories, do not adequately identify the alleged racketeering activity, and fail to identify the specific representations and materiality of such representations relied upon. An express contract is not pleaded. An implied contract is not found, as consent and consideration are missing. In the absence of adequate allegations of reliance, cognizable injury, and misconduct against the Defendants, the remaining claims fail.
The question remains as to whether Plaintiffs should be allowed leave to amend. Five factors are to be, and have been, considered: "(1) bad faith; (2) undue delay; (3) prejudice to the opposing party; (4) futility of amendment; and (5) whether the plaintiff has previously amended his complaint." Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir.2004) (citing Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir.1995)). "Futility alone can justify the denial of a motion for leave to amend." Id.
The case has been pending for almost a year. The Complaint before the Court is the fifth pleading filed. Plaintiffs have been accorded every opportunity to adequately plead a case, if one exists. Moreover, the imprecise, in part flimsy, and speculative nature of the claims and theories advanced underscore the necessary conclusion that further amendment would be futile. This case will be dismissed with prejudice.
1. Defendants' Motions to Dismiss
2. The Complaint
3. All other pending motions